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Class13 - Operations Management Class 1 Class 2 Class 3 and...

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11 Operations Management Class 1: Introduction to OM and Process Analysis Class 2: Process Analysis Class 3 and 4: Process Analysis Continued Class 5 and 6: Variability in processes Class 7: Forecasting Class 8: Quality Management, JIT, MRP, and ERP Class 9: Project Management Class 10: Midterm Review Class 11: Scheduling Class 12: Inventory Management: EOQ Model Class 13: Inventory Management: Lead Time and Demand Uncertainty
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6/8/10 Learning Objectives To understand the impact of lead time and demand uncertainty in inventory models 22
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6/8/10 Cycle Stocks: Tradeoff between fixed costs and Profile of Inventory Level over Time 33 Quantity on hand Q Receive order Receive order Receive order Demand rate Time
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6/8/10 EOQ 44 H SD EOQ 2 = D Annual Demand Rate S Order or Setup Cost H Annual Holding Cost
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6/8/10 EOQ ATM Example Cash Usage: $100 per week Fixed cost: $2/order Interest rate: 5% 55 D $5200 per year S $2 i 5% C $1 H i*C = (0.05)(1)=0.05 .98 44 6 2 = = H SD EOQ What is the “unit” here?
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6/8/10 EOQ Average Cycle Inventory Average Flow Time Cycle Time (or Reorder Interval) Ordering Frequency Exercise Demand: 12,000 units per year Unit cost: $500 Fixed cost: $4,000/order 66 D 12000 per year S $4000 C $500 i 20% H i*C = (0.20) (500)=100 489.9 2 = EOQ 979.8 2 = = H SD EOQ year 0.041 ) 2 / ( = D EOQ Little’s Law year 0.082 = D EOQ 12.25 orders/year D EOQ =
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6/8/10 EOQ Model: With a “Lead Time” 77 Lead Time : Time Quantity on hand Q Receive order Receive order Receive order Demand rate Time LEAD TI ME Place Order Reord er Point LEAD TI ME Place Order LEAD TI ME
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6/8/10 EOQ with Reorder Point 88 H SD EOQ 2 = Reorder Point: ROP = D Demand Rate LT Lead Time Valid provided LT < Cycle Time D Annual Demand Rate S Order or Setup Cost H Annual Holding Cost LT D
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6/8/10 Problem: VGH (1) Vancouver General Hospital consumes 100 boxes of bandages per week. The price of bandages is $70 per box. The hospital operates 52 weeks per year. The cost of processing an order 99 D 100*52 per year S $60 C $70 i 15% H i*C = (0.15) (70)=10.50 244 2 = = H SD EOQ S Q D H Q Q TC + = 2 ) ( 3249 500 2 500 ) 500 ( = + = S D H TC 2459.7 244 2 244 ) 244 ( = + = S D H TC 50 ) 52 / 5 . 0 ( ) 52 * 100 ( = = = LT D ROP
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6/8/10 Accounting for Pipeline Inventory Pipeline inventory is the inventory 1010 I f the buyer pays for inventory when it is shipped from the seller, then the buyer needs to consider the cost of the pipeline inventory LT D Pipeline I nventory (Little’s Law) Average I nventory Cycle Stock (Q/2) Pipeline Inventory (D ·LT) = +
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6/8/10 EOQ Model with Constant Demand 1111 Quantity on hand Q Receive order Receive order Receive order Time LEAD TI ME Plac e Orde r Reord er Point LEAD TI ME Plac e Orde r So far, we assumed
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